A.I. and Finance: the new (Automated) White Collars?

"REGTEC" the new buzzword?

Bron: lexology.com

Automated technologies have been implemented in multiple industries, from education to healthcare, and the banking system is riding the wave of technology opportunities too. Robotics helps identify and manage financial risks and evaluate credit limits, while Big Data Finance techniques extract the relevant elements of a dataset, reducing the amount of data to deal with. The FinTech world in general is providing structural and organizational changes in the way in which the financial system works.

A further step in automation is RegTech, that much like its cousin FinTech is promising to transform the finance system through tech innovations: short for Regulatory Technology, it is described as the adoption of new technologies to facilitate the delivery of regulatory requirements.

Banks in fact are trying to cope with the upcoming regulations that will impact the financial system, among which the Revised Payment Service Directive, the fourth AML Directive, and the revised Markets in Financial Instruments Directive, also known as MiFID II, coming into force in January 2018.

The difficulty in complying with such multitude of regulations, some of which of a significant technical complexity, has been perceived also by the regulators themselves. Testament to this is the recent European Commission decision to postpone the deadline for the MiFID II implementation by next year. “Given the complexity of the technical challenges highlighted by ESMA, it makes sense to extend the deadline for MiFID II” stated Jonathan Hill, Commissioner for Financial Services, Financial Stability and Capital Markets Union, that continued: “Meanwhile, we are pressing ahead with the level II legislation to implement MiFID II and expect to announce those measures shortly”.

RegTech solutions will play a vital role in managing the regulatory requirements, using machine learning systems that horizon scan for new regulations and map potential regulatory risks to key processes, thereby helping financial institutions to stay informed. Also, RegTech will use analytics mechanisms to automate customers and potential investors due diligences, simplifying the implementation of some regulatory aspects and driving down compliance costs, that are expected to reach over $230 billion only in 2018.

Such automation of processes will also help increase the effectiveness and accuracy of the results, cutting to the bone human errors and providing solutions on a (almost) real time basis. Also, RegTech solutions may be applied for a better understanding of how regulations can be used to improve the financial institutions’ performances, transforming legal burdens in new business strategies and opportunities.

The last feature, in particular, is at the core of the RegTech evolution: according to a recent report, the next generation of algorithms will be able to advise on financial issues, with RegTech providers already forecasting the benefits of a financial risks management without emotions, and some of the largest banks developing A.I. systems to come up with investment ideas.

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